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Finance Commission

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Syskool
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Finance Commission

Finance Commission is constituted to define financial relations between the Center and the States. Under the provision of Article 280 of the constitution, the President appoints a Financial Commission for the specific purpose of devolution of non-plan revenues resources. The functions of the commission are to make recommendations to the President in respect of:

1. The distribution of net proceeds of taxes to be shared between the Union and the           States and the allocation of share of such proceeds among the States.The principles       which should govern the payment of grant-in-aid by the Center to the States.
2. The principles which should govern the payment of grant-in-aid by the Center to the States.
3. Any other matter concerning financial relations between the Center and the States.
   The Finance Commission of India came into existence in 1951. The Finance commission is established under article    280 of the Indian Constitution of India by the President of India. The Indian Finance Commission Act was passed      to give a structured format to the Finance Commission of India as per the world standard. The need for the Finance    Commission was felt by the British for guiding the finance of India. The structure of the modern Act was laid in the    early 1920’s. The Finance Commission is formed to define the financial relations between the center and the state.      The Finance Commission Act of 1951 tells about the qualification, appointment, term, eligibility, disqualification,        powers etc of the Finance Commission.

Functions Of The Finance Commission

The Finance Commission’s duty is to recommend to the President as to-
  • The distribution of net proceeds of taxes between the Union and the States.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Panchayat in the state.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Municipalities in the state.

Implementation Of The Recommendation Of Finance Commission

The recommendation of the Finance Commission is implemented by an order of the President or by executive orders.

Powers of the Commission:

The Finance Commission has the following powers:
  • The Commission shall have all the powers of the Civil Court as per the Code of Civil Procedure, 1908.
  • It can call any witness, or can ask for the production of any public record or document from any court or office.
  • It can ask any person to give information or document on matters as it may feel to be useful or relevant.
  • It can function as a civil court in discharging its duties.

Qualifications for appointment and the manner of selection:

  • The Chairman of the Finance Commission is selected among persons who have had the experience of public affairs, and four other members are selected among persons who are, or have been, or are qualified as judges of High Court, or
  • Have knowledge of finance, or
  • Have vast experience in financial matters and are in administration, or
  • Have knowledge of economics

Term of Office of the members:

Every member of the commission shall be in the office as specified by the President. He can also be reappointed, provided that he has already addressed a letter to the President for his resignation.

Conditions of service and salaries and allowance of members:

  • Each member should provide whole time or part time service to the Commission as the President with respect to each case might specify.
  • Each member shall receive salaries according to the provisions made by the central government.

Disqualification:

A member may be disqualified if:

  • He is of unsound mind.
  • He is involved in a vile act.
  • If his interests are likely to affect the smooth functioning of the Commission.

Read Also: Planning Commission

 

In above context so far 11 Financial Commissions have been appointed which are as follows:

Finance Commission Year of Establishment Chairman Operational Duration Year of Submitting Report
I 1951 K.C.Niyogi 1952-1957 1952
II 1956 K. Santhanam 1957-1962 1956* and 1957
III 1960 A. K. Chanda 1962-1966 1961
IV 1964 P. V. Rajamannar 1966-1969 1965
V 1968 Mahavir Tyagi 1969-1974 1968* and 1969
VI 1972 Brahma Nand Reddy 1974-1979 1973
VII 1977 J. M. Shellet 1979-1984 1978
VIII 1983 Y.V. Chawan 1984-1989 1983* and 1984
IX 1987 N.K.P. Salve 1989-1995 1989
X 1992 K.C. Pant 1995-2000 Nov 26, 1994
XI 1998 A.M. Khusro 2000-2005 Jan 15, 2000*; July 7, 2000 and Aug 31, 2000
XII 2003 C. Rangarajan 2005-2010 Nov 30, 2004
XIII 2007 Vijay L. Kelkar 2010-2015 Constitued in Nov 2007

* Interim Report

All the above 11 Commissions have submitted their report in the year mentioned above. The recommendation of the various commissions can be divided into three heads:
A. Division and distribution of income tax and other taxes.
B. Grants-in-aids.
C. Loans to the state by the center.
Read Also:

Narasimham Committee Recommendations on Financial Reforms

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Narasimham Committee

Narasimham committee

Narasimham Committee was established under former RBI Governor M. Narasimham on August 14, 1991, to look into all aspects of the financial system in India. The report of this committee had comprehensive recommendations for financial sector reforms including the banking sector and capital markets. The committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on December 17, 1991.

Read Also: The Narasimham Committee

The salient recommendations are:

1. Four tier Banking System should be introduced in the country

  • I tier 3 or 4 International Banks
  • II tier 8 to 10 National Banks
  • III tier Regional Banks
  • IV tier Rural Banks

2. Branch licensing system for opening new bank branches should be abolished.

3. A liberal view should be adopted for allowing foreign banks in the country. Both domestic and foreign banks should be treated at par.

4. SLR for banks should be curtailed to the level of 25% within next 5 years. CRR should also be curtailed in various phases.

5. Banks should be given more autonomy and the directed credit should be abolished.

6. Primary targets for credit should be redefined and such credits should not be more than 10% of total credit.

7. Computerisation in banks should be promoted.

8. Banks should be authorised to appoint banking officials at their own discretion.

9. The duel control RBI and Finance Ministry on banks should be abolished and RBI should function only as a regulatory authority of banking system in the economy.

10. RBI’s representative should not be included in the management board of banks. Only Government representative should be there.

11. Granting resources to development finance institutions on concessional rates of interest should be abolished in phases within next three years. These institutions should be allowed to mobilize resources from the open market on competitive rates.Quick and effective liberal attitude should be adopted in the policy related to

12. Quick and effective liberal attitude should be adopted in the policy related to the capital market. The system of getting prior permission by the companies for their new share issues should be abolished.

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Special Economic Zone Act, 2005

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Special Economic Zone

Special Economic Zone policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports.

As a major step forward meant to instill confidence in investors and signal the government’s commitment to a stable Special Economic Zone (SEZ) policy regime, a comprehensive Special Economic Zone Act, 2005 was passed by the parliament in May 2005. It received the Presidential award on the 23rd of June 2005. This Act came into force w.e.f. February 10, 2006.

The salient features of Special Economic Zones Act are:

  • Exemptions from customs duty, excise duty etc. on import/ domestic procurement of goods for the development, operation and maintenance of Special Economic Zone (SEZs) and the units therein.
  • 100% income tax exemption for 5 years, 50% for next five years and 50% of ploughed back export profits for 5 years thereafter for Special Economic Zone SEZ’s unit.
  • Exemption from capital gains on transfer of an undertaking from an urban area to SEZs.
  • 100% income tax exemption to Special Economic Zone (SEZ) developers for a block of 10 years in 15 years.
  • Exemption from dividend distribution tax to SEZ developers.
  • 100% income tax exemption for 5 years and 50% for next 5 years for offshore banking unit located in SEZ.
  • Exemption to SEZ developers and units from Minimum Alternate Tax.
  • CST exemption to SEZ developers and units on the inter-state purchase of goods.
  • Constitution of an authority for each SEZ with a view to providing greater administration financial and functional autonomy to these zones.
  • Establishment of designated courts and a state enforcement agency to ensure speedy trial and investigation of offences committed in SEZs.
  • Encouragement to State Government to liberalise State laws and delegate their power to the Development Commissioners to the SEZs to facilitate single window clearance.

Read Also:

Finance Ministry rules out tax relief for SEZs

Foreign Trade Policy (FTP)

 

Method of National Plan Formulation

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Syskool
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Methods of National Plan

The National Plan has to go through various stages in order to reach its final form. About 2-3 years before the implementation of the National Plan, the discussions on the targets and programs of the plan begins. The Planning Commission collects the data of the national product, national consumption, availability of resources, national investment and saving for the future plan and it prepares micro and macro plans, keeping in view their allocation arrangements. Thereafter, national plans along with the data sent to the National Development Council. The NDC again sends it back to Planning Commission with or without any amendment. On this basis, the ministries of Center and State Governments are asked to prepare their projects. The Planning Commission obtains suggestion from a panel of experts operating in various sectors. On the basis of the requisites of the plan obtained from different ministries and opinion of the different specialists, the Planning Commission prepares a draft memorandum of the plan, in which all the policies and important details of the plan are laid down. This draft memorandum is sent to the central cabinet for discussion. After the assessment, the central cabinet sends it to National Development Council along with its suggestions. The NDC again sends it to Planning Commission with its suggestions. The Planning Commission prepares a draft outline of the objective and programs of the plan, keeping in view the draft memorandum and suggestions given by the Cabinet and NDC. This outline is sent to the various State Governments and Central ministries. It is published after receiving acceptance from the NDC. This published format along with the reactions and suggestions of the experts is again sent to the Central Cabinet and National Development Council. The approved format is laid down in its final form, which is presented to the Lok Sabha for discussion. After getting it ratified by the parliament the government implements the Plan.

Read Also:

History of Planning Commission in India

National Development Council

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National Development Council
National Development Council (NDC) is a non-statutory body which was constituted to build co-operation between States and Planning Commission for economic planning. The National Development Council was constituted on August 6, 1952, by a proposal of the Government. The Prime Minister is the Chairman and Secretary of the Planning Commission remains its secretary. In the beginning, only the Chief Ministers of the States were its members, but after 1967, all the Ministers of Central Cabinet, Administrators of the state ruled by the Center and all the members of Planning Commission were Included as members of this body.

The National Development Council is an important organisation, whose main functions are as follows:

1. To evaluate the implementation of National Planning from time to time.

2. To examine the social and economic policies that influence the economic development.

3. To give suggestions in the order to achieve maximum co-operation of the people, improve administrative                        efficiency, suggest necessary measures for the developments of under-developed and backward classed and also to      mobilise resources for national development.

4. To study the plan preparation by the Planning Commission and after mutual discussions give it the final shape. It        is only after its ratification that the format of the plan is published.

Also Read:

Method of National Plan Formulation

International Economic Association

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